German business confidence slips back from 2- 1/2 year high as Ukraine crisis clouds outlook

Mar 25, 2014
Geir Moulson, The Associated Press

BERLIN – Business confidence in Germany has slipped back from a 2 1/2-year high as tensions over Ukraine cloud companies’ outlook for the next six months, a closely watched survey showed Tuesday.

The Ifo institute said its monthly confidence index dropped to 110.7 points this month from 111.3 in February. That was slightly worse than the 110.9 economists had predicted.

Executives’ assessment of their current situation improved but their six-month outlook darkened, pushing the overall index lower for the first time since October.

“The crisis of the emerging economies and the events in Crimea are impacting the confidence of German firms,” the Ifo institute, which questions some 7,000 companies for its survey, said in a statement.

German Chancellor Angela Merkel has stressed that she wants a diplomatic solution to the crisis over Russia’s actions in Ukraine but has made clear she won’t shy away from economic sanctions if the situation there escalates.

Germany, Europe’s biggest economy, gets about a third of its natural gas supply from Russia. Last year, Russia was Germany’s 11th-biggest trading partner overall — well behind the top four of France, the Netherlands, China and the U.S. — with a total trade volume of 76.5 billion euros ($105.5 billion). That’s almost 4 per cent of Germany’s total foreign trade.

Last week, the government’s panel of independent economic advisers raised its 2014 growth forecast for Germany to 1.9 per cent from 1.6 per cent, following feeble growth of 0.4 per cent last year.

Andreas Rees, an economist at UniCredit in Munich, said there is “no reason to ring the alarm bell or even to call off the upswing.”

“At least so far, it is psychology and nothing else,” he said. As long as the crisis in Ukraine doesn’t escalate in a way that brings tough trade restrictions, “the hit to forward-looking confidence will only be a temporary one,” he added.

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